COLUMN & ROWS

What are the Determinants of Demand? | Theory of Demand

Demand:

Demand is the willingness and ability to acquire & pay for the desired Goods and services.

Theory of Demand:

(At Ceteris Paribus) When the price of a commodity ( Goods or Services) increases its quantity demanded decreases, and when the price of a commodity decreases its quantity demanded increases.

Explanation:

It means that price and quantity demanded has an inversely proportional relationship.

In layman’s terms, when something that you want to buy is expensive you will buy a lesser quantity of it, but if it becomes cheap then you will buy more of that good to satisfy your want. This rule is derived solely by taking the price of goods and services into consideration.

There are many other factors that may affect consumer demand significantly. These are commonly known as Determinants of demand. A change in determinant causes a shift in the demand line/ curve. Following are some determinants of demands discussed in detail below:

Income of the Consumer

A major factor is the disposable income of the consumer. Disposable income is the income after deducting taxes. It greatly affects consumer demand as consumers can only spend as much as they have to spend.

Credit Facility

The credit facility is the availability of credit cards, overdrafts, and other options by banks for customers. These facilities enable consumers to buy more now and pay the bank later on credit terms.

Indirect Taxes

An increase or decrease in sales tax has a very adverse effect on Demand as higher taxation increases prices and discourages consumers.

Trendz

New styles, weather, and trends majorly affect consumer demand. For Example in winter, you would prefer to buy jackets and hoodies as opposed to summer.

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